Fortescue Metals chief Andrew Forrest launches iron ore carrier

Fortescue’s new iron ore carrier should be a reminder the miner can meet its challenges, says Andrew Forrest.

Fortescue Metals Group’s Andrew Forrest and his family at the launch of the iron ore carrier, FMG Nicola.

Fortescue Metals Group’s sparkling new iron ore carrier should be a reminder that the miner is up to the challenges of a competitive market, chairman Andrew ­Forrest says.

The miner yesterday welcomed its first Very Large Ore Carrier, the first of eight ships worth $US556 million ($762m) that have been commissioned by Fortescue.

While they certainly weren’t enough to dampen the exuberance of Mr Forrest, there were ­reminders of the ongoing pressures facing the miner.

As Mr Forrest sailed into Port Hedland aboard the new ship, Brazilian iron ore giant Vale was having a celebration of its own as it christened the huge 90 million tonne a year S11D mine — believed to be the world’s biggest iron ore operation. And the welcome of the new ship, dubbed “FMG Nicola” in honour of Mr Forrest’s wife, coincided with Fortescue conceding that its highly anticipated ore blending deal with Vale — one of the few meaningful levers remaining for Fortescue to pull in its quest to get its production costs ever lower — was all but dead in the water.

In March, Fortescue and Vale spruiked a memorandum of understanding that was designed to develop an ore blend to sell into China, with an annual target of up to 100 million tonnes.

Confidence around the tie-up has been slowly sinking since midyear, however, given the agreement had flagged possible sales within six months of the MOU being signed. In a statement yesterday, Fortescue said while negotiations were continuing between the parties “it is looking less likely that any transaction will be completed”.

Mr Forrest, however, refused to let that news get in his way.

“We wish them the best,” he said yesterday. “They are on the other side of the world and we’ve just made through this very ship Fortescue’s competitive position over Vale even stronger.” As for the blending deal, Fortescue CEO Nev Power said there were several other ways to achieve similar benefits through potential deals with other parties. “We are disappointed that the Vale blending discussions didn’t come to fruition. However, it is not going to impact our business dramatically, and we will continue to blend our ore internally to give our customers the blends that they need,” he said. “We will also continue to look at other opportunities to blend our ore outside of the ­company. Every company in the Pilbara blends ores, and we think it is a logical extension to blend across companies as well, as our customers do.”

Fortescue has been one of the biggest winners from the surprise strength in iron ore prices this year, with its rally from less than a $1.50 a share to more than $6.50 adding more than $5 billion to the value of Mr Forrest’s 33 per cent stake in the company.

The miner has also reduced its gearing level below its 40 per cent target, paving the way for Fortescue to contemplate a lift in dividends beyond its 30-40 per cent layout ratio.

This prompted ratings agency Standard & Poor’s to yesterday lift the credit rating on Fortescue one notch to BB+ from BB. The outlook on the long-term rating is stable. “Fortescue has further reduced its absolute debt levels, which has strengthened the company’s resilience to periods of iron ore price weakness and operating stress,” S&P said yesterday.

Mr Forrest, who collected more than $120m in dividends from Fortescue this year, is certainly willing to consider a lift in the payouts. “It’s something that Nev and the whole Fortescue team have fought very hard for and we won’t stand in their road.”

The VLOCs have been specially designed for the physical and tidal characteristics of Port Hedland. The 327m longships are only 6m shorter than the US navy’s Nimitz Class aircraft carriers, and can carry about 255,000 tonnes of iron ore.

Mr Forrest sailed on the ship for the final three days of its journey from Asia, accompanied by his brother David and sister Jadie. Nicola, two of their children and his parents then joined them on Sunday night ahead of its arrival in the port.

The reporter travelled to Port Hedland as a guest of Fortescue